Friday 27 May 2011

When is insider trading legal?

For the U.S. at least, it appears it is when you're a politician. Valerie Richardson writes in The Washington Times:
An extensive study released Wednesday in the journal Business and Politics found that the investments of members of the House of Representatives outperformed those of the average investor by 55 basis points per month, or 6 percent annually, suggesting that lawmakers are taking advantage of inside information to fatten their stock portfolios.

“We find strong evidence that members of the House have some type of non-public information which they use for personal gain,” according to four academics who authored the study, “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives.”

To the frustration of open-government advocates, lawmakers and their staff members largely have immunity from laws barring trading on insider knowledge that have sent many a private corporate chieftain to prison.
The obvious way to deal with this is make insider trading legal for everyone, not just a small select group.

But Richardson as notes,
Strict laws ban corporate executives from trading on their insider knowledge, but no restrictions exist for members of Congress. Lawmakers are permitted to keep their holdings and trade shares on the market, as well as vote on legislation that could affect their portfolio values.
One law for them and another for us.

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